It is now a well-known story: Las Vegas is back.
The statistics are impressive with gambling revenue and visitation up double digits.
Much of the improvement is price driven. Average daily hotel rates along the Strip rose 33.7 percent in January over last year. To emphasize the comeback, that was 22.4 percent over pre-Covid rates from 2019. And that was also despite the fact that occupancy went up only 2.6 percentage points over last year, still 3.96 points less than 2019.
Another sign is the return of international visitors. International passenger counts at Harry Reid International Airport soared 234 percent year-over-year. That may partly explain the 21.7 percent increase in baccarat drop.
Given the reopening of China and other international markets, plus the return of the full slate of conventions and Las Vegas’ big events calendar over the next 12 months, the business volume outlook is promising.
But this might be as good as it gets.
The cautious signs may not be in the gaming revenue reports, which, by definition, look back, but in the outlook retailers see for the balance of the year.
In their fourth-quarter earnings calls, company after company reported that consumer spending is starting to weaken with the first signs being less spending on discretionary items like apparel and customers trading down to lower priced products. Even in essentials, like groceries, many customers are trading down to Walmart.
A number of retailers just flat-out project revenue declines.
Obviously, no spending is more discretionary than gaming. And the expense of traveling to Las Vegas to gamble is even more so.
It seems reasonable that as consumers cut back discretionary spending in stores they also will cut back spending in casinos. In Las Vegas, as noted, there are offsets, like the return of international visitors and the big convention and events calendars, but a softening in both LV and in regional casinos seems likely.
This softening will come while expenses are rising. Until recently, the big concern on the labor front has been finding enough workers post-Covid. Now it is rising wages, especially as casino labor contracts enter renegotiation.
Higher costs and softer revenue growth—and maybe outright declines in many cases—are not the formula for rising profits, or of rising stock prices.
We’ll get a read on the industry’s near-term outlook in coming weeks. Don’t be surprised if it results in stock prices that long-term bulls call a buying opportunity.
A Change In Course?
Golden Entertainment started the ball of speculation rolling when it recently decided to break out revenues from its wholly owned taverns that previously had been incorporated into its slot routes business.
That prompted analysts Carlo Santarelli of Deutsche Bank and Dave Bain of B. Riley to speculate that Golden may be thinking of selling the route business.
Such a sale would be a change in course for a company that began by servicing Nevada slot routes. But it also would not be surprising considering that casinos and wholly owned taverns produce higher profit margins and present a variety of growth opportunities.
Golden plans to add five taverns to its stable of 64 units this year and thinks the Las Vegas Valley can accommodate up to 100 under its brands. Given EBITDA of a half-million dollars and more per unit, that can add significant growth to a company projected to do upwards of $250 million in coming years.
More important are the opportunities the proceeds sales can open. With the sale of its Maryland casino generating $260 million pre-tax this year and estimates by Santarelli and Bain that slot routes could fetch $300 million, Golden could be nearly debt-free and piling up cash.
CEO Blake Sartini hinted at Colden’s future when it first went public through the reverse merger that acquired Rocky Gap casino in Maryland.
“Casinos are in our DNA,” the former COO of Station Casinos said in one of his first conference calls. Since then, Golden has built a network of southern Nevada casinos from Laughlin to Pahrump to Las Vegas locals to the Strat at the north end of the Las Vegas Strip.
Given the financial wherewithal provided by the Maryland and perhaps route sales, it would not be surprising to see that casino portfolio to grow.
